Use a legal Separation Agreement to Re-finance Your Matrimonial Home for More

Spousal Buy-Out Refinance Separation Agreement

For most families, the matrimonial home is the most significant asset they own. Deciding how to deal with it after the breakdown of the relationship is an important decision with long term consequences.

Often parties are able to agree that one person will buy out the interest of the other person so they can stay in the home. Staying in the family home can help add stability to an otherwise tumultuous time in everyone’s life, particularly for children.

There is an established formula used in family law to determine the amount of money the person keeping the house pays to the other spouse. This formula includes for the costs that will be incurred when the house is eventually sold on the market. 

If the parties cannot agree on the value of the home, a real estate appraiser can prepare a report and assign a value to the home. The amount of the mortgage owing is deducted from the current market value of the home, as is a 5% realtor commission, and $1,000 in legal fees. In some cases, you may also include things like pumping the septic, or repair upgrades that are reasonably required to sell the home. The payout is generally half of the remaining equity after the above deductions.

Once you have agreed on the terms of the buyout, you can include them in a separation agreement or contract which you can bring to your bank or lender. Once a formal separation agreement has been reached, the process requires two main steps.

First, the spouse who is keeping the house will often be required to obtain a new mortgage to replace the old mortgage, this is called a "Refinance". Refinancing allows the spouse keeping the home to put the mortgage solely in their name. The other spouse is then no longer liable under the mortgage. Additionally, it unlocks the equity in the home in order to facilitate the buyout payment to the other spouse.

When refinancing as part of a separation, the spouse keeping the home may qualify to refinance at a higher percentage of the value of the home than the standard maximum. The standard maximum is 80%, but the maximum for a spousal buyout can be as high as 95%.

In Nova Scotia, to qualify for refinancing at 95% you must have a legally binding, signed, separation agreement and a private purchase agreement. This is also only available for couples who are both on the title to the home prior to separation.

Once approved for a new mortgage, the final step of the process is to change the title to the home so it is legally owned by only one spouse. Most often, a "Quit Claim Deed" signed by both spouses is used to accomplish this. A Quit Claim Deed is a legal instrument that is used to transfer interest in real property. In a buyout, the deed allows the lawyer to take the name of the spouse being bought-out off the title to the home.

Ending a serious relationship comes with a lot of practical challenges. The team of lawyers at our Tantallon Law firm is experienced in guiding people through these situations.

If you're having an issue related to this topic we'd be happy to help.  You can call us at (902) 826-3070 to set up a meeting or contact us online.  You can also schedule a no commitment Issue Review Consult for $100+HST where you have the opportunity to explain your situation to a lawyer and get basic advice before deciding whether or not you'd like to retain us.

Briana C. O’Grady & Peter Duke - Associate Lawyers

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